Listening to investor stories gives the ArborCrowd team insight into what investors from all backgrounds are looking for when it comes to real estate investing. It also gives potential investors a chance to hear a first-hand account of the process, the pros and cons, and best practices.
We spoke with tech executive and real estate investor Bill Scott about his foray into the world of crowdfunding. Read the full interview below.
To start, can you tell us a little bit about your professional background?
Scott: My background is in tech, and my first break into software was writing a best-selling game for the Apple Macintosh. After that, I developed pro forma software for a multifamily company back in the 80s. Which is funny because I hadn’t done anything related to real estate for many years, so when I started evaluating real estate crowdfunding opportunities it came back to me — ‘wow, so that’s what I was doing back then.’ I have a long career in tech and have worked at Yahoo and Netflix, and currently lead engineering for PayPal and Venmo.
Did you have any prior experience investing in real estate?
Scott: Real estate started capturing my attention about two years ago. The first thing I got involved with was investing in debt funds. Then I started looking at direct real estate on websites like Bigger Pockets. I started doing due diligence and put some options together on potential purchases. However, I realized that I had a different problem. The people I was talking to created businesses from the ground up, but they didn’t really have much capital. I had the capital, I just didn’t know how to play the game.
So I began to learn firsthand by conducting interviews. I interviewed a colleague who headed up real estate investment for an international banking services firm and spent time learning that area. I talked to a lot of people and visited tons of properties.
Had you heard about crowdfunding before investing with ArborCrowd? What led you to commit?
Scott: I first heard about the world of crowdfunding real estate from someone on Bigger Pockets. The very first crowdfunding real estate that caught my interest was ArborCrowd, and the very first equity investment that I made was in the Clinton Hill Multifamily Portfolio. It was a big step to take, but here’s what made me comfortable.
I’m a tech guy. I’m a little more suspicious of real estate endeavors that start as tech companies. There’s a lot of knowledge you need to acquire to gain a market edge, especially in real estate since it’s so specific to an area. I wanted to understand the process, how capital was raised, and how the sponsors handled the acquisition and refinance distribution. I came to the conclusion that the Clinton Hill deal was strong across many different aspects.
How were you able to get comfortable with this investment?
Scott: When I was doing my own investigation of single-family residential investments, I developed some really useful excel sheets for tracking performance. As I talked to more people, I was able to further develop my sheets. I learned what it was like to calculate upkeep expenses based on the age of a house, when to replace the roof, and other various things like that. When I got the chance to look at what ArborCrowd was doing at Clinton Hill, I was comfortable because it was the exact same modeling that I had gone through, but on a larger scale. I could actually see the calculations happening in my head from my own spreadsheet, and it just made sense to me.
What is it about the apartment sector that makes it an attractive investment?
Scott: When we look at the Millennial population, people are starting families and buying homes later in life. There are also fewer incentives in deductions and tax structures. Even Baby Boomers are starting to realize that if they unlock the equity in their homes, they can retire or at least semi-retire. Mobility and flexibility are pushing people toward leasing over owning, and that makes multifamily promising.
In addition, there is a housing shortage, and building hasn’t picked up enough to meet the demand. There are always some folks that see the negative in situations and worry about the overbuilding of multifamily. But, even if there’s a downturn, people are still going to need an affordable place to live.
Is there any advice you’d give to someone thinking about investing in real estate, whether it be crowdfunding or brick and mortar?
Scott: First off, from a due diligence perspective, spend some time learning about the industry. There are a number of articles available online and a really great book “Investing in Real Estate” that does a great job explaining important topics like understanding sponsor fees and doing due diligence. I recommend to dig deep and understand the business model of real estate.
If you’re going to invest in multifamily, spend time understanding how multifamily works. What are all the expenses? You have to look at every line. You also have to consider the taxes. You shouldn’t be investing in what you don’t understand.
For myself, I wrote up a 50-page annual report looking at my own 2017 investments and analyzed where they’re at and what I want to double down on. That exercise helped me to better understand the return profile and even realize some of the underlying costs I was incurring without realizing it.